News: Globaltrans is acquiring 100% of MMK-trans for USD 335mn (USD 225mn equity and USD 110mn debt).
Our View: Compared to the Metalloinvesttrans deal, it looks expensive; however, we believethis is justifiable, given aggressive biddingby other players and the chance to get a volumes contract.While this brings positivity to the story, the news has already played out: Kommersant reported the deal last Friday.With a fragile rail market environment, the risks to our current forecasts areon the downside: we therefore reiterate our Hold.?
The MMK-trans fleet is 3,558 railcars, 70% of which are (10 years) gondolas. The acquired flat cars have an average depreciation of 68%.Globaltrans has signed a five-year contract with MMK Group, which would cover at least 70% of the group's requirements. In 2012, 70% means 17mnt - an important achievement considering the increasingly competitive market. 12,000 railcars will be required to execute this volume. Pricing looks reasonable. Tariffs will be adjusted quarterly to market levels between years two and five. For the first year, tariffs will be fixed at the current market level with indexation. Indexation looks like a bright spot given current downbeat tariff expectations. The conference call did not clarify how the stated 'current market level' compares to 1H12.?We estimate the fleet's DRC at USD 150mn, meaning USD 185mn was paid for the embedded contract. It prices in the USD 15,400/required railcar vs. USD 7,300 for the contract with Metalloinvest (requires some 23,000 railcars). The premium partially reflects the longer, five year contract with MMK (Metalloinvest: three years), but still, 110% looks hefty.?Given 40% of MMK-trans' 9mo12 EBITDA of USD 56mn came from third parties, an EV/EBITDA calculation would be misleading. If Globaltrans had executed 70% of MMK-Trans volumes in 2012 already, it would have recorded EBITDA of USD 140 mn, we estimate, giving an implied 2012 EV/EBITDA of 5.9x vs. 6.0x for Globaltrans and 3.9x for Ferrotrans.